Monday, August 6, 2007

Development of Main Street: Un-Development of Our Bank Accounts

As you may have read, the city is anxious to get their hands on local and state tax dollars by participating in the Main Street Maryland program.

Here is a basic summary of how this program would work:

Annapolis would go through the competitve application process along with any other place that has a Main Street and wants to apply. The Division of Neighborhood Revitilization, a sub-agency of the Maryland Department of Housing and Community Development, would then select a winning applicant. The city selected would receive tax money to help do the following 4 things:

1. renovation: enhance physical appearance of buildings
2. organization: enhance consensus and cooperation among businesses and residents
3. promotion: sell the city
4. economic restructuring: I decided not to even try and paraphrase the stated purpose here. According the the program's web site, it means "Strengthening the district's existing economic base while finding ways to expand it to meet new opportunities and challenges from outlying development"

To assist my explanation of why this is bad even in principle, I will use a technique that I have not used before on this blog: a visual aid.

(40 minutes elapse)

Agghhh, the hell with it. Blogger will not upload my visual aid correctly, so if you want a visual aid that took me 5 minutes to create, and 35 minutes to try and format for uploading, please email me. If not, I will try to explain the problem using words.

Here we go. In the economy, accountability always follows spending. Let's say you go to a gas station because it is clean, has low prices, and has flavorful coffee in the morning. If they raise their prices and switch to instant coffee, you can go to a different gas station. This process works with almost any good or service, and the price system thereby provides incentive for businesses to operate at maximum efficiency.

Now let's look at this Main Street Maryland Program, and how it is paid for:

Step 1: You earn money.
Step 2: The state of Maryland and the city of Annapolis both impose taxes, and you lose a portion of your money.
Step 3: If Annapolis is chosen to participate in the program, the state gives the city some of the money it took from you to fund the program.
Step 4: The city of Annapolis uses the state's money, and its money--both of which are really your money--and invests it in one of the 4 things mentioned above.

So, in the case of a free market, your money goes from point A (you) to point B (anywhere you buy something), and if you don't like it, you can do something else.

For the Main Street Maryland Program, your money goes from point A, to point B, to point C, then point C invests YOUR money in a very few points D. And the worst part is points B and C are governments, which are notorious for waste.

The problems are:
1. Only some points D get the money, others do not. The government is discriminating against someone.
2. You may not want YOUR money going to the particular points D that the government decides are worthy.
3. These points D exist in a very small geographical area, in this case downtown Annapolis, yet are funded by tax money derived from tax-payers throughout the state of Maryland--many of which will never visit the new downtown that they paid for. Does this seem fair?

Sveinn Storm owns 2 businesses downtown, an ice cream parlor and a carry-out sandwich place, and would probably stand to benefit from this program.

(As a side note, Mr. Storm and I have crossed paths concerning 3 issues recently, and I am with him on 2 of those. Come to think of it, I support ice cream as a general principle, so make that 3 out of 4.)

Yet, he had this to say:

Here's a program where they say they will rejuvenate downtown and bring it to life. The fact of the matter is that it's already alive. A thriving downtown area - that we have. But to take taxpayer dollars for this program downtown is deceitful.


The goal of this program is to improve the downtown businesses so that they, and therefore the city, will make more money. But the glaringly obvious point is: if these businesses think they can make more money by doing something differently, they will do it on their own! If the government spends money where the private market does not, they are BY NECESSITY creating a negative market distortion, and causing deadweight loss. (Notable exception to this rule: public goods.)

Ignoring these facts, Kevin Baynes, director of the Office of Programs and Regional Development for the state, had this to say:

Downtown belongs to everybody.

He also said:

We want to bring people together for one common goal of bringing them back to downtown.

Mr Baynes, if and only if you can guarantee me that every taxpayer in the entire state of Maryland will visit downtown Annapolis in a manner exactly proportionate to the amount of their taxes that went to the project, then I will grant you that this is a proper goal for a government to have.

Mayor Moyer had this to say:

From my perspective, any time we can do a good job of selling ourselves and the additional needs we want to make happen, that's a plus.

Although I am typically astute when it comes to translating politicians' quotes into what they actually mean, I had to ponder a minute on this one. What I think the mayor meant to say here is:

"Rest assured, whenever we think we may be able to grow government, we will try."

The aforementioned Mr. Baynes then tried to calm our fears:

Mr. Baynes said that although many of the programs start off depending highly on government funding, it eventually evens out.

First of all, the last time I checked, money spent when a program 'starts off' is still our money. Second of all, how does it even out? Halfway through, does the government suddenly start mailing us refund checks? Third of all, these programs might never 'even out'--they may fail to generate any new business, thereby nullifying any benefits that we might have been entitled to.

So what about generating new business?:

In Westminster for example, $16 million has gone toward the revitalization from public and private partnerships, 295 new jobs have been created and 80 new businesses have opened since 1999, when it joined Main Street Maryland.

So what. Main Street Annapolis has generated jobs too--without the program. Amazing, you say, how is this possible??!!! Answer: THIS IS WHAT THE PRIVATE MARKET DOES, AND IT DOES THIS TASK BETTER THAN THE GOVERNMENT. I bet Annapolis has similar or better economic growth statistics, and that the program has marginal effect if any. Is this worth our tax money? ( Don't you try any funny business--this is a rhetorical question. Answer: no.)

The main philosophical argument on this issue is whether or not a city should be involved in selling itself. My position is in the negative. When cities sell themselves--A.K.A. undertake economic development--they are spending the money of the masses to benefit the few. More than that, such cites are competing; they are taking risks. Cities are not for-profit entities, nor are they privately funded--when cities try to do the function of the private market they are taking YOUR money and RISKING it on something that may or may not succeed. And even if they succeed 100% of the time (which would never happen), this still might not benefit you because you may not have a use for what the city has developed.

If the city is going to 'sell' something, maybe it should sell its soul to the devil in exchange for unlimited 2 am licenses--at least then we will have bought something that makes sense. (Ha! Didn't see that coming, did you? Talk to everyone soon!)